LONDON Oct 13 (Reuters) - Gold steadied near four-week highs on Thursday, as support from further evidence of consumer demand in Asia was offset by the strength of the dollar, although investor nerves over the euro zone should insulate the price from any steep declines. China's trade surplus narrowed for a second month in a row in September, driven by a contraction in imports and exports that reflected the slowing global economy and also a softer domestic market, which put pressure on industrial commodities. The mood across markets was cautious in Europe ahead of a sale of Italian bonds, which will test fragile investor confidence in the ability of euro zone leaders to solve the debt crisis that could tip Greece into bankruptcy and threatens to spread throughout the region and hit the banking sector. Gold has risen by more than 2 percent this week, due to robust demand from jewellers and other consumers in Asia, where premiums are at their highest since the start of the year, and to demand from investors seeking an alternative to equities and currencies as the euro zone debt crisis deteriorates. The spot gold price was last down 0.1 percent on the day at $1,675.09 an ounce by 0852 GMT, having come off an overnight high at $1,683.89, and was set for a 2.4 percent gain this week, its strongest weekly performance in over a month. "We still consider the gold price as being well supported by physical demand but we wouldn't be surprised if gold prices did come under some downward pressure," said Commerzbank head of commodities strategy Eugen Weinberg. "It will be dependent on the macro factors so it's not surprising that gold isn't under real pressure, but it is losing some momentum after the recent price gains." The strength of the dollar posed a headwind to gold, which tends to decline when the U.S. currency rises as it raises the cost of owning the metal to non-U.S. investors The euro eased but still held near one-month highs and traders said more gains were possible ahead of a key summit of European leaders on Oct. 23 at which France and Germany have vowed to unveil a comprehensive set of steps to stem the spread of the crisis. Euro zone countries will ask banks to accept losses of up to 50 percent on their holdings of Greek debt, officials said on Wednesday, as part of a grand plan to avert a disorderly default and stem a crisis that threatens the world economy. CHINA SLOWING Industrial commodities came under pressure after the Chinese trade figures, with crude oil LCOc1 falling 0.5 percent to $110.82 a barrel, while copper lost 1.4 percent. China's trade surplus of $14.5 billion in September was smaller than August's $17.8 billion and less than half of the $31.5 billion recorded in July. Exports to the troubled European Union fell to their lowest value since June. In the United States, the minutes from the Federal Reserve's last meeting in September showed the Federal Open Market Committee discussed the possibility of launching a fresh round of bond purchases before deciding last month on a more limited step to aid the economy. "The FOMC's Sept 20-21 meeting minutes yesterday were moderately gold-friendly. They revealed that all options are open and some officials wanted to keep additional asset purchases as an option to boost the economy, with the discussion mostly focusing on long-term Treasuries," said UBS strategist Edel Tully in a note. "The Fed sounded concerned about economic growth, noting that additional accommodation would be needed if improvements in employment were too slow." An environment of near-zero U.S. interest rates is generally favourable for gold, which as a non-yield bearing asset, tends to gain favour with investors who forfeit less of a premium for holding bullion rather than stocks or bonds. In other precious metals, silver fell by 0.4 percent to $32.41 an ounce, declining in sympathy with the base metal complex, while palladium , of which China is a key consumer in the auto industry, fell 0.3 percent to $602.72. Palladium, which virtually doubled in price last year due to demand from China's fast-growing car market, has lost more than a quarter of its value this year, having fallen to its lowest in 25 months this month. Platinum eased 0.3 percent to $1,539.24. (Editing by Alison Birrane)

Source